ANALYSIS OF FINANCIAL STATEMENT OF BHEL (BY RATIO ANALYSIS)

1) Ratios based on liquidity:

2004.5 2003-04

A) Current Ratio B) Liquid Ratio C) Super Quick Ratio Interpretation -

1.58:1 1.23:1 0.38:1

1.65:1 1.31:1 0.42:1

As compared to 2003-04, the liquidity position has deteriorated marginally in 2004-05. As evident from the above, the ideal current ratio 2:1 has not been maintained. Similarly the ideal liquid ratio of 1:1 has not been maintained. The reason being Current Assets in totality has increased by 28%, but Inventories and Debtors have increased by 39% and 30% respectively.

2) Capital Structure / Leverage Ratio: 2004-05 1.49:1 20.43:1 11.22:1 2003-04 1.30:1 17.89:1 9.77:1

A) Debt Equity Ratio B) Interest Coverage Ratio C) Capital Gearing Ratio Interpretation

As compared to ideal debt equity ratio of 2:1, the companys long term solvency position is sound. Going by the interest coverage ratio, it is clear that the profitability of the company is adequate to serve the long term creditors. The company has low gearing ratio representing that long term creditors are safe and BHEL being such a old and established company, the company should go for more profitable projects, after taping the long term loans.

3) Activity Ratios:
2004.5 A) a) Debtor Turnover Ratio 1.8:1 b) Average Coll. period 200 days B) a) Creditors Turn. Ratio 2.55:1 b) Average payt. Period 141 days C) a) Inventory Turn. Ratio 3.80:1 b) Inventory Conv. Period 95 days D) Working Capital T. Ratio 1.95:1 E) Fixed Assets T. Ratio 8.91:1 F) Proprietary Ratio 0.41:1 2003-04 1.74:1 207 days 1.99:1 188 days 3.81:1 95 days 1.96:1 7.33:1 0.45:1

Assumptions: 1) Net Credit Sales = Turnover 2) Net Credit Purchase = Cost of materials consumed 3) Cost of Goods Sold = Turnover 4) Fixed assets = Net Block 5) Total Assets = Net Block + Capital WIP + Investment + Current Assets 6) In 2003-04, since average debtors = debtors, average creditors = creditors Interpretation

Average collection period has slightly declined in 2004-05, but still alarming and not good for the company. It has been a general trend in every PSU, which should not be taken easy. Average collection period being higher than average payment period, does not look good for the company. Debts are very high and needs to be realized fast. It has increased by 30%, more than increase in turnover i.e. 19%. Working Capital turnover ratio is good as turnover is almost twice of the working capital. Fixed Assets turnover ratio is good because turnover has increased (19%) more than the increase in fixed assets (5%). This also means that fixed assets have been utilized better to get more turnover.

Ratios based on profitability:

A) Profit Ratios based on Turnover: 2004.5 a) Gross Profit Ratio b) Net profit Ratio c) Operating Ratio d) Operating Profit Ratio 54% 10% 85% 14% 2003-04 57% 8% 87% 12%

Assumptions: 1) Gross Profit= Turnover cost of goods sold 2) Cost of goods sold = cost of materials consumed ( + or -) accretion or decretion of stock 3) Total operating expenses : cost of good sold + erection & engg. Expense+ employee expenses + other adm., selling & distribution + exchange variation 4) Operating profit = turnover cost of goods sold operating expenses Interpretation

There has been slight improvement in net profit from 8% to 10% due to operating expenses, which have decreased form 87% to 85% as reflected in operating ratio. As a comparison between Gross profit and net profit, Gross profit has declined mainly due to increase in Raw material cost by 42% in 2004-05 as compared to 2003-04 Operating profit ratio has also improved due to reduction in operating expenses. B) Profit ratios based on Investment: 2004.5 2003-04 12.37% 12.47% 26.89 6.00 22.3% 4.24% 0.95% 23.54

a) Return on Capital Employed b) Return on Shareholders Funds c) Earning per share (Rs.) d) Dividend per share (Rs.) e) Dividend payout ratio f) Earning Yield Ratio g) Dividend Yield Ratio h) Price Earning Ratio

16.78% 16.87% 38.95 8.00 20.5% 4.52% 0.93% 22.14

Assumptions 1) Capital Employed =Net Block + Capita WIP + Investment + Net Current Asset 2) Average Capital Employed (for 2004-05 only) = (opening + Closing) Capital Employed/ 2 3) For 2003-04, average capital employed = capital employed 4) There are 24,47,60,000 no. of shares in both the years 5) The market price in 2004-05 is average of high and low of the price in BSE during the month of march-05. That is Rs. (883+741.6)/2 (i.e. Rs.862.30). Similarly the market price is the average of the high and low of price in the month of April 2004. That is Rs.(686+580.25)/2 (i.e. Rs.633.12) Interpretation

The EPS and DPS is both good for the company as it has been 45% and 33% increase respectively in 2004-05 as compared to 2003-04. There has been high appreciation in the value of shares by 36% from Rs.633.12 to Rs.862.30 in the year 2004-05. This has made the share price of the company more attractive.